Fraud charges against eight social media influencers accused of promoting languishing stocks to their followers and then dumping the shares when they rose are exposing a dark side of investing.
Seven of the men charged in the case on Dec. 13, all of whom have prominent profiles on Twitter, are alleged to have made at least $100 million from their scheme since at least January 2020. In many instances cited by the Securities and Exchange Commission in its
The "pump and dump" scheme allowed them, Wall Street's regulator alleged, to buy a stock when its price was still low and then sell it after the price had been driven high. When their followers asked the influencers if they were still holding on to their shares, the SEC alleged, the defendants both lied and deleted old Tweets and other social media posts to cover their tracks.
"To their legions of followers on social media, the eight defendants have, for years, promoted themselves as trustworthy stock-picking gurus," the SEC complaint stated. "In reality, they are seasoned stock manipulators."
Hugh Berkson, the president of the Public Investors Arbitration Bar Association, whose lawyers represent defrauded investors, said the lessons for consumers and advisors are clear.
"Free advice is worth exactly what you pay for it," Berkson said. "If something is too good to be true, it probably is. I realize these are horrendous cliches, but there are reasons there are these cliches."
The eighth defendant charged by the SEC — Daniel Knight, who has the Twitter handle @DipDeity — is accused of aiding and abetting in the schemes by hosting the podcast "Pennies: Going in Raw." His fellow host — Mitchell Hennessy, who has the Twitter handle @Hugh Henne — is among the defendants.
Berkson said the case makes a compelling argument for why people should work with financial professionals. Before anyone takes advice from a broker or planner, he said, they should first look for any disciplinary records in the Financial Industry Regulatory Authority's
Separately, the
Howard Fischer, a former SEC senior trial counsel and now a partner at the New York firm Moses Singer, said the social-media aspects of the case shouldn't obscure the fact that the defendants appear to have been running a classic 'pump and dump' scheme. He said that microcap and cheap "penny" stocks are ripe for manipulation because fraudsters can buy them in large numbers for little money.
"If you wanted to do this with Apple, you'd have to pay hundreds of millions if not billions of dollars," he said. "Secondly, these companies are subject to rapid increases in price because they are so thinly traded. Because their trading activity is normally so low, if you suddenly have a lot of activity, that will increase the prices very quickly."
The SEC's complaint cited several stocks that the influencers were able to manipulate using Twitter and Discourse, a platform that allows users to communicate by video calls and text messages. In one case, three of the defendants — Gary Deel (@notoriousalerts), Perry Matlock (@PJ_Matlock), and Thomas Cooperman (@ohheytommy) — started buying shares in Camber Energy, a Houston-based oil and gas company, in early August 2021. By Aug. 4, the SEC said, their holdings had become "significant." Around 3:30 p.m. that same day, when the price of the stock was approaching 50 cents a share, Deel and Matlock posted to Twitter that the stock price was low. Matlock deemed it "cheap AF."
Over the next four minutes, according to the SEC, "Matlock sold 165,100 shares, Deel sold 60,000 shares, and Cooperman sold 240,000 shares of CEI, as the price rose by a penny per share." The three then returned to social media to encourage their followers to hold onto stock in Camber Energy, which now trades for less than 10 cents a share.
The SEC alleged that the three defendants continued manipulating the stock in the same way for months. Eventually, two other defendants — Edward Constantin (@MrZackMorris), and Stefan Hrvatin (@LadeBackk) — also bought into Camber Energy. On Oct. 1, Constantin told his Twitter followers he believed shares in Camber Energy would eventually hit at least $10 a share. Four days later, after repeating that claim, he sold his more than 2 million shares in the company for an average of $2.61 each, according to the SEC. The SEC said Constantin made $4,301,440 from these trades.
Max Schatzow, a founder of the investment advisor law firm RIA Lawyers, said the case differs from the one the SEC brought against the celebrity and influencer Kim Kardashian. With Kardashian, the SEC accused her of using social media to encourage investing in a digital asset known as EMAX without revealing she had received payments for the promotion. Kardashian agreed to settle with the SEC for $1.26 million on Oct. 3.
Schatzow said the recent case against the Twitter influencers rests much more on evidence that they had been working together behind the scenes.
"What stands out is that there were multiple people doing it, multiple people involved in the planning," he said.
The SEC is seeking to have the defendants permanently banned from stock dealings, return their ill-gotten gains and pay civil penalties. The eight defendants were criminally charged by the Department of Justice's Fraud Section and the U.S. Attorney's Office for the Southern District of Texas.
In its complaint, the SEC said that the defendants' Twitter pages usually had disclaimers saying no one should act on their recommendations. The regulator alleged, however, that their private communications showed that their Tweets and other public statements were meant to be taken seriously. Constantin, for instance, told Knight and Hennessy on their "Pennies: Going in Raw" podcast that "I understand that if I call something, you know, everybody and their mom is going to buy."
Besides posting regularly on Twitter, Matlock and Constantin reached out to novice investors through an online forum they started on Discord called Atlas Trading, which had 150,000 members last year. The last defendant, John Rybarcyzk, who has the Twitter handle @Ultra_Calls, started a similar forum on Discord called Sapphire Trading. Separately, Cooperman and Deal maintained a YouTube channel called
